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WASHINGTON -- Unless policymakers act, the next offshoring wave will hit high-end IT jobs and undermine America's "innovation infrastructure," U.S. Sen. Joseph Lieberman (D-Conn.) warned in a major policy address.

With harsh words for Democrats and Republicans, Lieberman said Congress' response to the challenge has been predictable: "Do Nothing" free-traders shunning any government action and "Do Anything" protectionists who might "save some jobs today, even if it means losing more tomorrow."

"To stop offshore outsourcing and preserve American jobs, America needs to rise to the international competition and grow again through innovation," Lieberman said before a packed room at the New America Foundation on Tuesday. "There is no other way. Leaving it all to the markets won't work. Hiding behind a wall won't work. Attempting to rig the game won't work. Only education, innovation, investment, trade, training and hard work will give us the growth and jobs we want and need."

To bridge the bitter divide in Congress over the issue, Lieberman proposed a bipartisan commission to address high-tech offshore outsourcing and to develop proposals for strengthening U.S. innovation efforts.

"We are not just losing jobs -- we may be losing critical parts of our innovation infrastructure, and with them, our competitive edge in the global marketplace," Lieberman said. "The offshore outsourcing of jobs is just the tip of an economic iceberg that America is sailing towards. Our economic vitality and national security are in jeopardy."

Although the government collects no official data on offshore outsourcing in the services sector, one study by Forrester Research estimates that over the next 15 years, 3.3 million U.S. service jobs and $136 billion in wages will move offshore. Another study by McKinsey's Global Institute suggests the number of service jobs moving out of the United States will accelerate at an annual rate of 30 percent to 40 percent over the next five years.

Lieberman cited recent comments by the President's Council of Advisors on Science and Technology that concluded, "Maintenance of U.S. technical pre-eminence is not forever assured." He also quoted HP CEO Carly Fiorina as saying, "There is no job that is America's God-given right anymore."

Lieberman said he was "certain" offshoring of high-end services sector will become "acute" in the near future if current trends continue.

"If a software programmer in India earning $7,000 a year can do the same work as a software programmer in the United States making $64,000 a year, it is only a matter of time before more of those jobs relocate overseas," he said. "Customer call centers and data entry facilities are being relocated to places where capable labor can be found at lower wage levels. High-speed digital technologies make a connection between Boston and Bangalore as fast as between Boston and Baltimore."

Lieberman warned the next wave of jobs lost will be in computer chip design, IT services, programming, engineering consulting and pharmaceutical research.

Most alarming, he said, was the outsourcing of R&D, noting that American companies invest $17 billion in R&D abroad every year and that multi-national IT companies have established 223 R&D centers in China alone. While Lieberman called for a permanent R&D tax credit, he also said Congress needs to re-evaluate where the R&D dollars go.

"Although the United States is overwhelmingly a service economy, our federal and corporate R&D is geared to manufacturing," he said. "Corporate R&D is now 68 percent of the total national R&D expenditures and 62 percent of that amount is still focused on manufacturing."

In the end, Lieberman said, there must be recognition that "no matter how much we innovate, some people are going to lose the jobs they have now."

To help those losing the jobs, he suggested wage loss insurance as a part of severance packages and paid for by a "small percentage" of the employer's savings from offshoring."

Lieberman was also critical of U.S. trade policy that focuses more on "negotiating" than on enforcement. To illustrate his point, he pointed to the Japanese challenge to the American semiconductor industry in the late 1980s and early 1990s.

"In the 1980s, America was close to losing this sector to Japan," Lieberman said. "But we battled back, and thanks to innovations that grew from a creative public-private partnership called Sematech, we secured our world semiconductor dominance. It provided a key boost to our growth rate and IT leadership in the 1990s."

That lead, Lieberman said, is now threatened by China, which is using plant and worker subsidies in violation of World Trade Organization (WTO) rules. Chinese currency manipulation further skews the market.

"After neglecting this issue for too long, the U.S. Trade Representative finally insisted in March on consultations with the Chinese (on semiconductor trade issues)," he said. "If these talks fail, we should not hesitate to bring a WTO case against China. The loss of most of our semiconductor industry will not only weaken our economy, it will threaten our national security."

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